Greece: Can the EU put it together again?
15 December 2009
In Berlin and Brussels there is growing doubt over whether Greece can solve its debt problems without external help. If nothing is done, the country risks bankruptcy — with unforeseeable consequences for the European currency.
In Germany's financial centre, Frankfurt, and in other international stock exchanges; in the capital cities of the EU; in finance ministries, and even the HQ of the International Monetary Fund (IMF) in Washington, nerves are frayed. Everyone is asking the same question: What happens when a country, even a member of the European Monetary Union, goes bankrupt? Can the EU allow this? In any case, the EU cannot push Greece out of the eurozone and leave the country to its own devices, although the Greeks did cheat their way into the common currency club with the aid of fudged budget figures.
The alarming nature of the situation is reflected by the fact that the IMF is taking up the issue. The IMF has serious doubts over whether Greece's projected deficit for this year, which was revised from 6 to 12.7 percent, is in fact realistic -- or whether it is actually much higher. According to the standards applied to private individuals, Greece would already be insolvent today, despite the fact that it has continued to service all its debts. This is due to the enormous outstanding debts that government agencies and ministries have in the private sector. These claims amount to over €10 billion ($14 billion). Taking these sums into account would cause the Greek deficit to rise even further. Meanwhile, the EU has discovered that it takes an average of 165 days for the Greek government to pay its bills -- and that figure is rising, too.
The spectre of political unrest
There is also a lack of trust in Greek promises within the EU. All too often in the past the Greeks have vowed to make improvements. In Berlin and Brussels politicians are increasingly grappling with the question of how to effectively help the Greeks.There appears to be little doubt that the EU will take action -- after all this concerns the future of the euro, and perhaps even the future of Europe. If the EU actually allows a member state to go bankrupt, it could spark a chain reaction.
Europe might perhaps be able to afford to let a country go bankrupt, just as the US was able to cope when California went broke. But what if this happens to a number of EU countries? That would trigger what euro skeptics have warned about right from the start: The European common currency would collapse. But the trouble wouldn't stop there. When government bonds that have been regarded as a safe investment suddenly become worthless, then the banks start to wobble again, except in this case there would be no more governments strong enough to support them. Nonetheless, even an isolated Greek bankruptcy would be bad enough, both economically and politically. Greece is already shaken by violent demonstrations, and political unrest could not be ruled out if the country descended into financial chaos.
Up to its ears in debt
What should be done to head off this Greek tragedy? Many heads of state and government, including Merkel, would like to keep the IMF from getting involved anywhere in the euro zone. This is primarily because they feel that the Europeans must solve their currency problems alone. Outside help would only undermine confidence in the euro. The chancellor instead advocates establishing an instrument on a European level that would resemble what the IMF already has in place. In other words, money would only flow in exchange for tough and wide-ranging preconditions. This would significantly limit a country's sovereignty. The Greeks, for example, might have to accept a budget inspector -- or be forced to raise their taxes so that a predetermined sum of money can be raised through additional revenues.
But no one knows if this would be sufficient, or if even these measures would come too late. Greece is up to its ears in debt -- not only to its bondholders, but first and foremost to foreign companies. This concerns mostly defense. But it's not just in that sector that companies have trouble getting the Greeks to pay their bills. In the health sector Greece's outstanding payments are enormous. A few weeks ago, the European umbrella organization for the pharmaceutical industry informed its members of the appalling backlog of payments from Greek government agencies. The organization said that in late 2008 Greece owed €2.7 billion just for drugs and medications. "We are completely at the mercy of the Greeks," says a Berlin pharmaceutical lobbyist, "because the deliveries cannot simply be canceled. People's lives depend on them. It's not like with cars where you can say: If you don't pay we just won't deliver."